Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 70-66

1970-1 C.B. 114

IRS Headnote

Royalty payments placed in escrow pending litigation regarding ownership of the land should be reported in the year the litigation is settled or the taxpayer's right is established in some other way; I.T. 1212 superseded.

Full Text

Rev. Rul. 70-66 /1/

A leased a parcel of land to M, a domestic corporation engaged in oil exploration, under a royalty agreement. Heirs of a former owner of the land are suing to recover it. During the pendency of the suit M is holding up payments of royalties to A and has agreed to do so until the litigation is settled. The royalties are being deposited in an escrow account.

Held, since A's right to the royalties is in dispute, it not being certain A will ever receive such payments, and since if the royalties are rightfully A's they will not be available to A until the litigation is finally determined, such royalties withheld by M are not to be included in A's income for the years in which they would otherwise have been payable, but should be reported as income for the year in which the litigation in question is finally disposed of or A's right to the royalties is established in some other way.

I.T. 1212 C.B. I-1, 90 (1922), is hereby superseded, since the position stated therein is restated under the current statute and regulations in this Revenue Ruling.